Untapped: George Leeds fills his biofuel Mercedes at Dogpatch Biofuels, one of only two projects to get SF Carbon Fund money. The Department of the Environment blames the shortfall on its trouble finding local carbon-offset plans.

At its inception, then-Mayor Gavin Newsom hailed the SF Carbon Fund as a pioneering effort to let local residents, businesses and government agencies mitigate their own pollution while helping to build a local renewable energy economy.

“This program differs from existing carbon-offset programs that seek to offset carbon pollution far away from where this pollution is actually created,” Newsom said when he unveiled the program in December 2007.

Yet five years later, the Department of the Environment is struggling to live up to its mandate.

Under the program, city department heads contribute 13 percent of the costs of their employees’ air travel to the fund. Collection of this surcharge began in July 2009. Last fiscal year, city departments contributed $134,882, and at the start of this fiscal year in July 2012, the fund contained $260,026.

But city officials have found it difficult to find local carbon offsets in which to invest. To date, the fund has been used to finance just two projects — $30,000 for fruit tree planting and $4,000 on Dogpatch Biofuels, a biodiesel filling station.

The solution, department officials say, is to do away with the program’s carbon-offset requirement and use the fund’s money to invest in a broader range of environmental projects. Verifying the carbon offset of potential investments has proven cost-prohibitive, officials say, and leaves them few options.

“This will greatly expand uses of the fund and respond to community requests for support of neighborhood level carbon-reduction projects,” an Oct. 23 memo from the department’s Climate Team said.

The proposed change is seemingly a far cry from how the fund’s creator, Newsom, envisioned the program. The hope at that time was that the airfare surcharge would get a local carbon-offset program off the ground, leading to its use by residents and businesses.

But department officials have found that assignment more daunting than first imagined.

“As a city agency we are not actually equipped to develop offsets,” department Climate Action Coordinator Calla Ostrander said during an October committee hearing. “We don’t have the capital to invest and risk not having the return on it. We’re actually really not allowed to sell them anyway. So it’s a very difficult situation that we are in.”

The Department of the Environment continues to work on new rules for the fund, and it expects to issue a request for proposals early next year to see what projects it might finance, spokesman Guillermo Rodriguez said. Projects under consideration range from tiny green spaces known as parklets, which cost between $5,000 and $20,000 each, to residential solar water heating systems, which cost about $10,000.

“In short, the SF Carbon Fund would become a Carbon and Green Community fund that supports projects that reduce [greenhouse gas] emissions and produce other environmental benefits such as storm water mitigation, improved local air quality or increased urban habitat,” the Oct. 23 memo said. “These projects would reduce [greenhouse gas] emissions, but may not necessarily meet rigorous offset protocols required by state and international carbon-offset programs.”